Consolidation in India healthcare continues with Manipal acquiring majority stake in AMRI hospitals

Temasek-backed Manipal Hospitals acquired a majority stake in AMRI Hospitals Ltd to expand its reach and optimise operations. Concurrently, Emami's decision to divest its majority stake in AMRI Hospitals signals a strategic review of its portfolio, with a renewed emphasis on core businesses. The deal, healthcare analysts claim, promises to be mutually beneficial for all parties involved.

Deciphering the deal

On Wednesday Manipal group announced to have acquired an 84% stake in AMRI Hospitals Ltd. In the deal, Emami has sold its majority stake in AMRI Hospitals but will retain a 15% stake, while the government of West Bengal will hold approximately 1% stake in AMRI. Allegro Capital Advisors served as advisors for Manipal Health Enterprise Pvt. Ltd. in this initiative.

Manipal has a stronger financial position compared to AMRI, with higher revenues, positive PAT, and a superior Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin. The group invested Rs 2,300 crores to acquire an 84% stake in AMRI.  The total deal value is Rs 2,738 crore. AMRI has 1,200 beds, and the valuation per bed is calculated at Rs 2.28 crore.

When comparing the financial performance of Manipal versus AMRI, in 2023, Manipal reported revenues of Rs 2,473 crore, while AMRI reported revenues of Rs 899 crores. Manipal's Profit After Tax (PAT) was Rs 194 crore, whereas AMRI reported a negative PAT of Rs 139 crore. Manipal's EBITDA was Rs 738 crore, with an EBITDA margin of 29.84%. In contrast, AMRI's EBITDA was Rs 162 crore, with an EBITDA margin of 18.02%. In the data comparison, Manipal appears to have a significantly higher EBITDA margin and positive PAT compared to AMRI.

It is pertinent to note that in April 2023, Singapore-based sovereign wealth fund Temasek infused Rs 16,400 crore into Manipal Hospitals, securing a substantial 41% stake in the healthcare giant. This strategic partnership marked a transaction with a total value of Rs 40,000 crore. With a formidable network of 8,300 beds, Manipal Hospitals attains a valuation of Rs 4.82 crore per bed.

“Manipal has acquired 1,200 beds from AMRI at roughly Rs 2.28 crore per bed. Importantly, Temasek paid around Rs 4.81 Crore per bed for Manipal. AMRI's sale of its hospital business is in the right direction for Emami and adds value for all parties involved - Emami, AMRI, and Manipal,” said Poornima Vardhan and Taponeel Mukherjee, Principals at AltG, a financial services firm.

How does Manipal benefit?

The acquisition of AMRI Hospitals is strategically significant for Manipal Hospitals, offering a strong geographical fit. AMRI Hospitals, one of the largest healthcare provider networks in Eastern India, treats nearly 500,000 patients annually with advanced technology.

"Manipal Hospitals has always served patients from Eastern India and neighbouring countries. This acquisition reflects our commitment to further strengthen our presence in Eastern India, an area with a gap in healthcare services. With this addition, Manipal Hospitals will now serve patients in its 17th city in India, Bhubaneswar, Odisha,” Dr. Ranjan Pai, Chairman of Manipal Education and Medical Group (MEMG) said.

AMRI operates hospitals in Dhakuria, Mukundapur, and Salt Lake (all in Kolkata) and another in Bhubaneswar, Odisha, boasting over 1,200 beds, 800 doctors, and 5,000-plus healthcare professionals. Together, the combined entity will manage 33 hospitals across 17 cities, offering a total of 9,500 beds and drawing from a talent pool of over 5,000 doctors and 20,000 employees.

Impact of the spin-off on Emami

In the deal, Emami Group divested its majority stake in AMRI Hospitals to focus on its core business. According to a report by Sharekhan, a subsidiary of the financial services company BNP Paribas, the deal is also expected to help reduce the Emami promoters' pledge from its current level of 32-33% to 15% by the end of FY2024.

“Promoters’ pledge is expected to reduce to low single digits by H1FY2025 from 32-33% currently, with required steps initiated at the group level (including the sale of AMRI Hospital),” the report said.

Emami's stock has only increased by 5.45% in the last 5 years, while its competitors, Godrej Consumer, have risen by 19.9%, and Dabur by 22.45%.  “This spin-off will help Emami focus on and drive growth in its core business. As a seasoned hospital operator, Manipal is in the best position to significantly improve margins for AMRI (Manipal's projected 2023 EBITDA Margins are at 29.84% compared to AMRI's 2022 EBITDA Margins at 18.02%) through higher asset utilisation and increased efficiency,” said Vardhan and Mukherjee.

Growth prospects for AMRI under Manipal

Vardhan and Mukherjee held that AMRI will be able to leverage the operating strength of the Manipal group - a larger platform, greater negotiating power, and improved margins at a platform level. We foresee significant potential for roll-up platforms and continued consolidation in Indian healthcare, both in multi-specialty and single-specialty hospitals.

“As part of our strategy to focus on our core businesses, we have divested the majority of our stake in AMRI Hospitals, which is a significant step in Emami Group's stated objective. We will, however, maintain a 15% stake in AMRI Hospitals, while the Government of West Bengal will hold approximately 1% stake,” Directors of Emami Group, Aditya Agarwal and Manish Goenka said.

"Identifying a prospective partner who not only possesses excellent healthcare credentials but also prioritizes the best interests of the people was crucial for us. Manipal Group will continue to provide the best healthcare services to the people of Eastern India and neighbouring countries while accelerating AMRI's growth in the future,” they said.

The combination of AMRI Hospitals' expertise and facilities with Manipal Hospitals' network is expected to help meet the growing demand for top-notch healthcare in Eastern India, according to healthcare analysts.

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